New SEC No-Action Letter on Crypto Custody: What It Means for Advisers & Funds

Custody of crypto assets has long been one of the most challenging areas for regulated advisers and funds. With the SEC staff’s recent no-action letter and Commissioner Peirce’s accompanying statement, the regulatory picture is beginning to shift. CRC continues to follow this topic closely, and examine what remains uncertain, as well as how firms can position themselves for compliance and resilience.

What’s New: SEC’s No-Action Position on Custody of Crypto Assets

On September 30, 2025, SEC Commissioner Hester M. Peirce issued a statement accompanying a Division of Investment Management no-action letter (NAL).

The staff NAL states that it will not recommend enforcement if registered investment advisers and regulated funds maintain crypto assets (and related cash) with certain state-chartered trust companies that operate under regulatory frameworks materially similar to banks.

The letter expresses that the SEC’s Division of Investment Management would not recommend enforcement under certain custody rules (Advisers Act Rule 206(4)-2 and Sections 17(f)/26(a) of the Investment Company Act) when a State Trust Company is treated as a “bank” for purposes of custody of crypto assets and associated cash equivalents, assuming certain conditions are met, including:

• Due diligence / prior and annual review
  The adviser or fund must have a reasonable basis, after inquiry, to believe the State Trust Company:
  • is authorized by its state banking authority to provide crypto custody services,
  • maintains written policies and procedures designed to safeguard crypto assets & related cash equivalents (covering private key management, cyber controls, etc.).
• Independent audits / control reports
  • The trust company must have audited financial statements (GAAP)
  • It must have internal control reports (e.g. SOC-1 or SOC-2) on controls over custody services.
• Written custodial agreement with protections
  The agreement must provide that the custodian will not lend, pledge, hypothecate or rehypothecate the crypto or related cash without prior consent, and that the assets are segregated from the custodian’s own assets.
• Disclosure of risks & determination of best interest
  • The adviser or fund must disclose material risks of using that kind of custodian.
  • They must reasonably determine it’s in the best interests of clients / fund and its shareholders / board.

Importantly, this NAL does not formally expand the statutory definition of “permissible custodian” under the Advisers Act or Investment Company Act. Rather, it reflects the staff’s view that some state trust companies may already qualify under existing law. The letter is a staff no-action assurance, not a binding rule. It doesn’t change statute or regulation, and different facts or circumstances could lead to a different result.

The relief is limited to advisers and funds that are subject to statutory custody rules (“funds and securities,” “securities and similar investments”), and covers native crypto assets as well as tokenized securities. Peirce frames this NAL as a step toward reducing ambiguity in the custody rules and suggests the possibility of a future principle-based modernization of those rules.

In parallel, Peirce’s broader remarks call out existing regulatory obstacles:

• Critical of prior SEC guidance (notably Staff Accounting Bulletin 121) as having made crypto custody commercially impracticable for many custodians; that guidance has since been rescinded.
• Views the Special Purpose Broker-Dealer (SPBD) custody regime as too constrained and not fit for wider adoption.
• More broadly, urges more flexible oversight and modernization of custody rules to respond to blockchain realities (e.g. key control, segregation, technical risks).

While the NAL offers relief and clarity in one respect, it also leaves open many important questions. The lines between permissible and impermissible custodial arrangements remain hazy, and firms that engage in crypto activities must still make careful navigations of operational, legal, and risk issues.

Why This Matters to You

This development affects any regulated adviser or fund evaluating or already engaged in crypto asset investing. Key implications include:

1. Greater choice of custodians (but still risk): The NAL may enable more state trust companies to serve as custodians, opening alternatives beyond national or state banks. But because the relief is discretionary, reliance on a state trust custodian still carries legal and reputational risk unless the structure is well documented and defensible.
2. Need for rigorous due diligence and structuring: You’ll want to ensure the custody provider meets strong regulatory, audit, cybersecurity, segregation, and control standards. The NAL’s protection likely hinges on a custodian being materially regulated in a way comparable to banks.
3. Alignment of doctrine and technology: With Peirce pushing for modernized, principles-based rules, firms should frame their custody models and internal policies in a way that anticipates evolving standards (e.g. key control, proof of reserves, segregation, dispute handling).
4. Portfolio and product design flexibility: The NAL’s inclusion of tokenized securities can support innovation in structuring digital-asset products inside regulated wrappers, provided custody arrangements are defensible.
5. Regulatory engagement opportunity: This NAL reflects a more pragmatic and accommodative posture in portions of the SEC toward crypto. Firms now have an opening to engage with the Commission, contribute to rulemaking, and influence standards.

How We Can Help You Navigate This Landscape

Our regulatory practice is well positioned to provide support as your firm navigates the regulatory landscape of digital assets as it continuously evolves.

Our team at Compliance Risk Concepts (CRC) can help you move beyond regulatory uncertainty to well-engineered, defensible custody and fund structures, positioning your firm for both compliance and growth as the SEC evolves its posture. We do not operate at arm’s length; we embed as an extension of your in-house team, bringing specialized regulatory expertise that integrates seamlessly with your existing operations. By aligning with your strategic objectives and internal workflows, we enable you to focus on innovation and client service while ensuring that regulatory obligations are anticipated, met, and documented with precision.